The additional shares will be sold “from time to time” and “at market price,” Tesla said in a filing with the Securities and Exchange Commission. The filing says the banks will sell shares based on Tesla’s guidelines.
With Tesla’s market capitalization of $598 billion, the new offering represents less than 1% of the company’s value.
The plan comes at an important time for Tesla, which is building new factories in Germany and Texas as part of its global expansion. Building new factories is extremely capital intensive for automakers. Tesla warned investors of its upcoming spending in October, saying it plans to spend $2.5 billion in 2021 and 2022, particularly on new factories and their expansion, including battery cell manufacturing.
“We’re trying to spend the money at the fastest rate possible and not waste it,” Tesla CEO Elon Musk said during the company’s third-quarter earnings call. “That’s our current plan. And so it’s pretty hard to spend money without wasting it.”
Tesla’s operating expenses jumped 33% in the third trimester the previous three months to $1.25 billion.
Wedbush analyst Dan Ives said in a note on Tuesday that the capital raise was “clearly positive and further strengthens” Tesla’s bull case.
“Now in a position of clear strength and out of red ink with major factory builds on the horizon (Austin and Berlin), Musk and his red cape are raising enough capital to secure the balance sheet and capital structure. to further firm up its growing cash position and slowly exit its debt position, which throws the persistent bear thesis for Tesla out the window for now,” he wrote.
Shares of the company, which hit a record high on Monday, reversed course to fall 1.1% in premarket trading on Tuesday. Shares of the automaker are up around 670% this year. Including a 5 for 1 stock split in August.
Tesla’s most recent rally was driven by its announced its inclusion in the S&P 500 from December 21. Since the announcement, Tesla shares have risen 57.3%. Tesla is expected to be the biggest addition to the stock index in its history.
Tesla has entered into a stock distribution agreement with banks, including Goldman Sachs and Citigroup Global Markets, to sell its common stock, with total sale proceeds of up to $5 billion. The banks will be compensated with a commission of up to 0.25% of the total gross proceeds from each stock sale, according to its filing with the SEC.
—Reuters contributed to this report.